Dore Gold said Mr Arafat bore responsibility for the attack because he had not put an end to incitement to violence against Israelis.

"Yasser Arafat and the Palestinian Authority are directly responsible for the deaths," he told the BBC.

Mr Arafat condemned the attack and called for a joint ceasefire.

Raanan Gissin, a spokesman for Mr Sharon, refused to reveal how the government planned to react to the attack, but said that "Israel is definitely going to respond."

The sentiments were echoed by Jerusalem Mayor Ehud Olmert.

"We are in a war... We will act together with the government to reach every one of those who is responsible for terror, to hit them and kill them," he said.

In a strongly worded statement, US President George W Bush called on Mr Arafat to "act now to arrest and bring to justice those responsible, and take immediate, sustained action to prevent future terrorist attacks".

Competing claims

Hamas, the hard-line Palestinian militant group, said one of its members had been the bomber.

Islamic Jihad, which had also claimed responsibility, later said it had mistakenly thought that one of its activists was behind the blast.

"Our fighter Hussein Abu Amsha was en route to carry out a martyrdom operation and when the explosion happened, our brothers thought it was him," Islamic Jihad General Secretary Ramadan Shallah said in Damascus.

Palestinian legislative council member Hanan Ashrawi said the pizza parlour attack was part of a cycle of violence.